New York City Real Estate

Sizing Up The Market For Assisted Living in 2010

David G. Stevenson is an assistant professor of health policy at Harvard Medical School in Boston, Massachusetts.

David C. Grabowski is an associate professor of health care policy at Harvard Medical School.

Assisted living has emerged as an important housing and long-term care option for older Americans. To date, development of this sector has occurred largely without government financing or regulation. In this study we used primary data that we collected on county-level assisted living supply to gain a fuller understanding of this sector nationally. Reflecting their reliance on private resources, assisted living facilities are located disproportionately in areas with higher educational attainment, income, and housing wealth. As this sector evolves, policymakers will have to contend with issues related to access to services, public financing, quality of care, and regulatory oversight.

Public financing of the long-term care market in the UnitedStates has historically gone to the nursing home sector. Sincethe advent of Medicare and Medicaid, federal and state policiesand a range of political and practical factors have contributedto an “institutional bias” in long-term care service delivery,favoring nursing home care over community-based alternatives.1 Over the past two decades, however, a wider range of homeand community-based services have become available to olderAmericans who need assistance with activities of daily living.Assisted living in particular has rapidly emerged as a housingand long-term care option for older Americans. As of 1999, one-thirdof facilities that called themselves “assisted living” had beenin business less than five years, and 60 percent had beenin business less than ten years.2

A commonly cited definition of assisted living is put forwardby the Assisted-Living Quality Coalition, a group of providersand consumer groups. The coalition defines assisted living as“a congregate residential setting that provides or coordinatespersonal services, 24-hour supervision and assistance (scheduledand unscheduled), activities, and health related services.”3General agreement exists about the broader goals of assistedliving care, including accommodating residents’ changingneeds and preferences; maximizing residents’ dignity,autonomy, and independence; and encouraging family and communityinvolvement. Yet there is a great deal of heterogeneity in therange of services offered and the populations served acrossfacilities and markets. Indeed, many facilities fall short ofthe ideal.4 Importantly, the market for assisted living hasevolved over the past decade as facilities have come to servea more disabled resident population with an increasingly complexarray of services, potentially implying that assisted livingcould be a more viable nursing home alternative than it initiallywas.5,6

Growth in assisted living has been driven in large part by consumerpreference. People who need assistance in performing everydayactivities such as bathing, eating, or dressing prefer to receivesupportive services in the least institutional and most homelikesetting possible. A general population survey found that peoplewould prefer to be cared for in an assisted living facilityover a nursing home if they needed twenty-hour care, by a marginof six to one.7 In addition, for some people with less intensivecare needs, it may be possible to purchase assisted living careat lower prices relative to nursing home care. Although thecost of assisted living can vary considerably depending on theamenities and services provided, industry surveys by GenworthFinancial put the average annual cost of assisted living careat $34,000 in 2009, compared to $74,000 per year for a semiprivateroom in a nursing home.8

An important point from a public policy perspective is thatthe development of the assisted living industry has occurredlargely without the influence of government financing or regulation.As such, there is no single regulatory or licensure categoryfor assisted living facilities, which makes it difficult toestimate the industry’s actual size. With this caveat,one recent study estimated that there were approximately 38,000 assistedliving facilities and 975,000 units nationwide in 2007(a “unit” may contain more than one bed, as in the case of marriedcouples).9 In contrast, the nursing home industry had approximately16,100 facilities and 1.7 million beds nationwidein 2004.10

Previous efforts to collect assisted living supply data havelargely been at the state level.9,11 These studies have identifiedmuch variation in assisted living supply across states; however,examining potential within-state variation or correlations betweenassisted living supply and market-level characteristics hasnot been possible. In this study we used county-level assistedliving supply data that we collected from individual states.Specifically, we merged a 2007 cross-section of assisted livingdata with other market-level data on nursing homes and populationsociodemographic traits, to gain a fuller understanding of thedistribution of assisted living facilities nationally.

Study Data And Methods

Assisted living data There are no national data on assisted living facilities; however,there are separate data sources across states, such as statelicensure registries. The authors collected detailed state-by-statesupply data that included facility name, location, and capacity(units). Our data include a national cross-section for 2007.

Reflecting its imprecise definition, assisted living acrossstates includes a wide range of licensure categories for congregateresidential facilities beyond just “assisted living” (for example,residential care facilities, community living arrangements,and personal care homes). Similarly, state definitions for “units”can vary. Some states include only one bed per unit, and othersinclude more than one.

To ensure comparability with previous findings and as a checkfor the comprehensiveness of our data collection, we used previousNational Academy for State Health Policy compilations of state-levelassisted living supply data as a guide to data collection andas a basis for comparison.9,11 We provide more detailed informationabout our data collection procedures and licensure categoriesincluded, by state, in an online appendix.12 For the analysesbelow, we limited our supply data to facilities with twenty-fiveor more units, in an attempt to focus on facilities purposelybuilt to be assisted living and to exclude small group homes(for example, adult foster care facilities).

Nursing home data We used nursing home data from the Online Survey, Certification,and Reporting (OSCAR) system for all Medicaid- and Medicare-certifiedfacilities (96 percent of all facilities nationwide). Collectedand maintained by the Centers for Medicaid and Medicaid Services(CMS), OSCAR data indicate whether nursing homes are in compliancewith federal regulatory requirements and include facility-reportedinformation about facility, resident, and staffing characteristics.Following an initial survey, states are required to survey facilitiesno less than every fifteen months, and the average is abouttwelve months.

Using data from 2007 and earlier, we included the most recentsurvey observation for 15,792 nursing homes in our analyses.For these facilities, we also merged information from the NursingHome Compare database (available online from http://www.medicare.gov/NHCompare/)—inparticular, the 5-Star quality rating for each facility, whichis a composite measure based on staffing levels, inspectionresults, and clinical outcomes.

County-level data We obtained data on various county characteristics from the2007 Bureau of Health Professions Area Resource File (ARF).This file contains data on a range of population characteristicsat the county level, including socioeconomic data, as well asavailability of medical professionals and services.13

Analyses All analyses used a 2007 national cross-section of data. Usingthe assisted living supply data we collected, we first describedthe supply of assisted living facilities and units at the statelevel, including the penetration of assisted living units per1,000 people age sixty-five and older. For the county-levelanalyses, we merged assisted living, nursing home, and ARF variablesinto a single county-level observation. Across these analyses,assisted living penetration (that is, the number of units per1,000 elderly people) is the primary variable of interest.

Our choice of the county as the “market” for assisted livingwas partly pragmatic, because the ARF data are reported at thecounty level. Yet this distinction is also consistent with theprevious literature on the nursing home market.14,15 In additionto denoting counties without assisted living, we divided countiesinto quartiles of assisted living penetration, from quartile1 (low penetration) to quartile 4 (high penetration).16

Using our geocoded county-level data, we first present a nationalpicture of assisted living penetration. We next present cross-tabulationsof various county and nursing home traits, by assisted livingpenetration. Each of these analyses compared these traits acrossassisted living penetration quartiles, testing for significantdifferences from counties in the highest-penetration quartile.County traits of interest include educational attainment, medianhousehold income and other economic indicators, and racial/ethniccomposition; our hypothesis was that assisted living facilitieswould tend to locate in relatively urban/suburban areas withhigher socioeconomic status. Nursing home traits of interestincluded total residents and beds per 100 people age sixty-fiveand older, mean occupancy rate, percentage of for-profit andchain facilities in the county, mean activities of daily livingscore and acuity index of residents, payer mix of residentsacross facilities, and mean facility rating on the CMS 5-Starsystem—the quality-rating system used on the agency’sNursing Home Compare Web site. Inclusion of nursing home traitswas driven by the desire to gain a greater understanding ofnursing home markets in areas with relatively high and low assistedliving penetration.

Finally, we used the same approach to examine selected variablesavailable only at the state level by state assisted living penetration.These variables include private long-term care insurance penetration(active policies per person ages 45–65) and Medicaid spendingfor all long-term care and for home and community-based services.Our hypothesis was that assisted living facilities would tendto be located in areas with a higher penetration of long-termcare insurance and greater home and community-based servicecapacity.

Results

Exhibit 1 shows the supply of assisted living facilitiesacross states, including facilities, units, average facilitysize, and penetration of units per 1,000 elderly people. Nationally,there were 11,276 assisted living facilities with 839,746 unitsnationwide (74 units per facility) in 2007. The penetrationof these facilities varied greatly across states: Connecticut,Hawaii, and West Virginia had fewer than 10 facilities per 1,000elderly, and Minnesota, Oregon, and Virginia had more than 40.As noted above, our analysis included only facilities with twenty-fiveor more units. This restriction substantially lowers the totalnumber of facilities nationwide (from 39,562) and more modestlylowers the number of units (from 1,072,536). Our estimates ofthe industry’s size including all facilities are consistentwith the previously published studies mentioned above.

Exhibit 1 Assisted Living Facility Supply, By State, 2007Source Assisted living supply obtained through primary data collection by the authors. Notes Reporting methods for these data can vary somewhat by state. Some states count only one facility per physical location, while others count one facility per license. In addition, state definitions for “units” can vary, with some states including only one bed per unit and others including more than one. Population data obtained from the 2007 Area Resource File. Penetration per 1,000 elderly obtained by dividing assisted living units by number of people age sixty-five and older.

Exhibit 2 depicts assisted living market penetration bycounty in terms of the number of units per 1,000 people agesixty-five and older.

Exhibit 2 Assisted Living Penetration In The United States, By County, 2007Source Primary data collected by authors.

Exhibit 3 shows the correlation between assisted livingpenetration and a range of county-level sociodemographic traits.Counties with higher assisted living penetration tend to havegreater educational attainment, median household income, andmedian home values and a lower proportion of minorities. Therewere few significant differences between the two highest quartiles,but differences across almost all traits were significant betweenthe highest and lowest quartiles of penetration. Counties withno assisted living facilities, disproportionately located inrural areas, are especially distinct from counties in the highestquartile of penetration. In the counties with no facilities,rates of college educational attainment are much lower (13.8 percentversus 19.9 percent), median household incomes are muchlower ($35,379 versus $43,034), median home values are muchlower ($69,560 versus $98,541), and rates of minorities in thepopulation are much higher (17.1 percent versus 12.8 percent),compared with counties in the highest quartile.

Exhibit 3 County Traits, By Assisted Living Facility Penetration, 2007Sources Assisted living supply data obtained through primary data collection by the authors. Population data obtained from the 2007 Area Resource File. Notes Penetration defined as assisted living units per 1,000 people age sixty-five and older. ALF is assisted living facility. Statistical significance denotes difference from quartile 4.

There were fewer significant differences in assisted livingpenetration across counties on a range of nursing home marketcharacteristics (Exhibit 4). The most visible differencescenter on the payer mix of local nursing homes. Relative tonursing homes in markets with lower assisted living penetration,facilities in areas with higher assisted living penetrationhave fewer residents relying on Medicaid and more residentsrelying on other (private) payer sources. For instance, themean percentages of Medicaid and “other payer” in high-penetrationareas were 60.6 percent and 27.6 percent, respectively,compared to 69.3 percent and 22.0 percent, respectively,in areas with no assisted living facilities.

Exhibit 4 County-Level Nursing Home Traits, By Assisted Living Facility Penetration, 2007Sources Assisted living supply data obtained through primary data collection by the authors. Population data obtained from the 2007 Area Resource File. Nursing home data obtained from the Online Survey, Certification, and Reporting (OSCAR) data. Facility 5-Star ratings obtained from Nursing Home Compare database. Notes Penetration defined as assisted living units per 1,000 people age sixty-five and older. Statistical significance denotes difference from quartile 4. ALF is assisted living facility. NH is nursing home.

Exhibit 5 highlights the correlation between assisted livingpenetration and selected state-level traits, for which county-leveldata are not available. Penetration for long-term care insuranceamong people ages 45–65 was greater in states with higherassisted living penetration (10.0 percent and 5.5 percentacross the highest and lowest quartiles, respectively). Stateswith higher assisted living penetration also spend a greaterportion of their Medicaid long-term care dollar on home andcommunity-based services (44.4 percent) than do stateswith lower penetration (31.2 percent).

Assisted living has become a widespread housing and care optionfor seniors, with almost 840,000 units nationwide. In contrastto the nursing home sector, where facilities are heavily regulatedand depend mostly on public dollars, the assisted living sectorhas, to date, grown without substantial government regulationor financing. The distribution of assisted living facilitiesnationally is consistent with what one would expect, given theirreliance on private resources. They are located disproportionatelyin areas with higher educational attainment, income, and housingwealth. This trend is especially striking in the context ofcomparing counties with no assisted living facilities to thosein the highest quartile of the distribution. For example, themedian home value in the highest-penetration areas is more than40 percent higher than in counties with no assisted livingfacilities ($98,500 and $69,600, respectively).

After rising sharply in the late 1990s, the supply of assistedliving facilities has moderated in recent years.9 Moreover,occupancy rates and access to capital for new construction haveboth faced pressures in the context of the current financialdownturn. Although industry wide occupancy rates are reportedlystable, some assisted living facilities (such as newer facilitiesor companies that embarked on ambitious expansion plans) havestruggled to fill beds, especially in parts of the country wherehome values—a key mechanism seniors use to finance care—havebeen hardest hit.17,18 Some companies have sought bankruptcyprotection, while others have looked for ways to contain costsand boost occupancy rates.

The long-term implications of these changes for the assistedliving sector are unclear, but our data suggest that the growthin assisted living has dramatically changed the long-term carelandscape. To date, however, very few government or academicstudies have modeled this change or considered the potentialimplications for the long-term care sector as a whole. Policymakersand researchers will need to grapple with issues related toaccess to services, public financing, quality of care, and regulatoryoversight. Each of these issues is considered in turn.

Access to services From the consumers’ perspective, the emergence of assistedliving as a supportive housing option is largely a positivedevelopment. Given that private-paying consumers “vote withtheir feet” (and their dollars) in favor of assisted living,there is a strong preference for this care model. It is worthnoting, however, that the sector is still a nascent one andthat there is much variability across states and markets incapacity and services offered. In particular, low-income people,including minorities and people living in rural areas, havesubstantially less access to this care option. Our findingsalso suggest that access to assisted living is greatest in stateswhere a greater proportion of Medicaid long-term care dollarsis going to home and community-based services, which suggeststhat community-based service capacity matters. Given researchsuggesting disparities by race and income in the nursing homesector,19 future research should consider how the differentialpresence of assisted living across markets contributes to thisphenomenon.

Public financing To date, states have been cautious in expanding Medicaid coveragefor services in assisted living facilities. Many states havesmall programs under which Medicaid pays for personal care andmedical services in assisted living, but few assisted livingresidents receive these public supports. One recent estimateis that approximately 115,000 Medicaid recipients nationwidereceived services in assisted living facilities in 2007.9 Unlikecare delivered in hospitals and nursing homes, Medicaid cannotpay for beneficiaries’ room-and-board expenses in assistedliving, which potentially creates a further barrier to access.Instead, these expenses typically are financed from a resident’sincome, including Social Security, Supplemental Security Income,state supplements, private pensions, federal housing subsidies,and—in some states—family contributions.20

Although there are important noncost considerations in expandingMedicaid-financed care in assisted living (such as strong consumerpreference), any proposed expansion is accompanied by importantfiscal caveats. In particular, the cost-effectiveness of assistedliving relative to nursing home care is unclear, especiallyif access is offered more broadly through a state Medicaid program.Assisted living has the potential to serve as a cost-effectivesubstitute for higher-intensity nursing home care for some people.Yet policymakers are concerned about the moral hazard (or so-calledwoodwork effect) likely associated with offering people an arrayof long-term care services, especially attractive options suchas assisted living. A key issue from a state budgetary perspectiveis whether assisted living coverage can be structured to increasesubstitution away from Medicaid-financed nursing home care whileminimizing substitution away from unpaid care by family andfriends. In the past, it has proved particularly difficult totarget services only to people who otherwise would have entereda nursing home.21

Quality of care To date, there is limited and uneven evidence about the qualityof care offered in assisted living facilities.22,23 For example,relative to the quality information that is publicly reportedon the federal government’s Nursing Home Compare and HomeHealth Compare Web sites, there are fewer government-providedresources to guide consumer choice in assisted living.24 Thepaucity of information in this area results from a lack of uniformassessment data on assisted living residents as well as fromuncertainty about the range of outcomes for which facilitiesshould be held accountable.25

Reflecting the orientation of assisted living facilities towardconsumer choice, an important component in the development ofthis research base should be comprehensive quality-of-life measures—adimension of study that has proved challenging in the nursinghome sector.26 Finally, an aspect that is unclear is whetherthe nature and quality of care would change in the context ofa potentially expanded role for public financing—a factorthat will depend, in part, on the government’s oversightapproach.

Regulation As noted, there is wide variability across facilities in servicesoffered and across states in the degree of government involvementas a payer and regulator of these services. Some states clearlyspecify the types of services that assisted living facilitiescan and cannot provide, sometimes defining distinct licensurecategories accordingly. Other states give providers broaderflexibility to meet the needs of residents.27

The government’s role in assisted living facility carewill inevitably evolve if Medicaid and other public payers investmore in this sector. Indeed, twelve states have enacted certificate-of-needlaws to hold down the supply of facilities, with the idea thatthe existence of fewer units will constrain public spendingon these services.28 One tension that will likely magnify ifpublic payments to assisted living increase is the trade-offbetween allowing providers flexibility in structuring housingand service options for consumers, on the one hand, and ensuringgreater standardization of care and access to services, on theother.

A vital component of establishing public policy in the assistedliving sector will be the collection of longitudinal, market-leveldata to track the growth of facilities and the evolution ofpeople served and services offered. The analyses presented hereoffer a snapshot of assisted living facility supply nationally.

Importantly, these cross-sectional analyses do not allow oneto draw inferences about the impact of growth in assisted livingon a range of Medicaid or nursing home market characteristicsover time or about the evolution in the case-mix of assistedliving residents or the services they receive. Policymakerswill need such data going forward to protect consumers and tocraft sustainable policies that can meet the needs of our agingpopulation across long-term care settings.

Acknowledgments

This work was supported by funding from the Changes in HealthCare Financing and Organization (HCFO) Initiative of the RobertWood Johnson Foundation (Grant no. 61511).

Received for publication July 2, 2009. Accepted for publication October 15, 2009.

Notes

1. Kane RA, Kane RL, and Ladd RC. The heart of long-term care. New York (NY): Oxford University Press; 1998.

2. Hawes C, Rose M, and Phillips CD. A national study of assisted living for the frail elderly: results of a national survey of facilities. Washington (DC): Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services; 1999.

6. Spillman B, Liu K, and McGillard C. Trends in residential long-term care: use of nursing homes and assisted living and characteristics of facilities and residents. Washington (DC): Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services; 2002.